BRW - BRW: I Like This Fund But Not The NAV Destruction

2024-02-01 06:43:33 ET

Summary

• Saba Capital Income & Opportunities Fund has a high distribution yield of 13.60% and pays out special distributions to shareholders.
• The fund has a reputation for activist investing and has attempted to force fund managers to make changes to reduce discounts on NAV.
• The fund's performance has been flat compared to the S&P 500, but investors have received a 4.94% total return due to high distribution yields.
• The fund employs some hedge fund strategies such as using long-short positions to reduce interest rate risk.
• The fund trades at a discount, but its NAV has declined for two straight years. This suggests that the fund is distributing too much to its investors.

The Saba Capital Income & Opportunities Fund ( BRW ) is a rather interesting closed-end fund that has managed to acquire a very good reputation among some closed-end fund investors. One reason for this is obviously the fund's very high distribution yield. As of the time of writing, the fund has a 13.60% forward yield but in practice, the yield tends to be a bit higher because of this fund's habit of paying out special distributions to its shareholders. For example, earlier this month, the fund paid out a $0.1140 per share special distribution. This amount is more than the fund's normal payment and as a result, the fund's investors effectively ended up receiving just over thirteen regular distributions this year. The fund could very well make special distributions like this in the future. The fund's management has also managed to acquire a reputation for activist investing due to their strategy of purchasing other closed-end funds that trade at large discounts and then pushing for changes that are intended to reduce the target's discount on net asset value. This has generally worked out pretty well as a strategy and the shareholders of the Saba Capital Income & Opportunities Fund have benefited overall.

As regular readers might recall, we last discussed the Saba Capital Income & Opportunities Fund in early October 2023. Unfortunately, the fund's performance since that time has not been particularly impressive. As we can see here, the shares of the fund have been almost perfectly flat over the period compared to a massive 14.84% gain in the S&P 500 Index ( SP500 ):

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